Up until a year ago, the shipping industry was ordering ships in droves. This year, orders of new vessels have fallen to a record low and companies can’t get rid of ships fast enough.

About 1,000 ships that have the combined capacity to haul 52 million metric tons of cargo will be dragged onto beaches, cut into pieces and sold for scrap metal this year. That is second only to the record amount of capacity of 61 million so-called dead weight tons that were scrapped and recycled in 2012.

The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis. Companies including Maersk Line, a unit of Danish conglomerate
A.P. Møller Maersk
A/S, Germany’s
Hapag-Lloyd AG
and
China Cosco
Bulk Shipping Co. have 30% more capacity in the water than cargo. As the companies, mostly based in Europe and Asia, fight for bigger shares of the global market, freight rates have dropped so low they barely cover fuel costs.

In the five years through 2015, owners ordered an average of 1,450 ships annually. This year orders through July fell to 293 vessels, or 11.6 million tons, according to U.K. marine data provider Vessels Value.

“Given the tremendous overcapacity, it will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand,” said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors Co.

In the benchmark Asia-to-Europe trade route, shipping rates are at an average of $575 a container this year, compared with $620 last year and $1,165 in 2014. Anything below $1,400 is unsustainable, operators say.

“Freight rates are dismal,” says Anil Sharma, president and chief executive of U.S.-based Global Marketing Systems, the world’s largest cash buyer of ships for recycling. “So you either idle ships, if you can afford it, or recycle.”

Mr. Sharma said the typical age for recycling a ship is 30 years. This year the average age of ships getting scrapped is about 15 years.

“What’s changing is that younger ships are being scrapped, but recycling won’t solve overcapacity on its own,” said Maersk Line CEO Soren Skou. “Only market growth can do this,” he said, adding that his company hasn’t scrapped many vessels this year—only about 1% of its capacity—but it expects to recycle more ships over the next three to five years.

Others are more active. Hapag-Lloyd scrapped 16 ships last year, or 60,000 containers, roughly 6.2% of its total capacity.

The overcapacity problem has been exacerbated by China’s slowing economy and anemic growth in Europe. Last year, Chinese imports from the European Union fell nearly 14%; Chinese exports to Europe were down 3% in the period. In this year’s first quarter, Chinese imports from the EU fell 7% from a year earlier, a decline matched by exports to Europe.

That has drastically affected the container trade. Last year, some 100 Asia-to-Europe sailings were canceled. That amounted to 10% of the traffic that moves 98% of the world’s manufactured goods, including electronics, household goods, shoes, clothing and food.

“Drastic fleet-management strategies have been implemented by container operators to reduce their exposure on oversupplied trades, and scrapping is one of them,” said Jonathan Roach, a container-shipping analyst at London-based Braemar ACM Shipbroking.

A global commodities slump hasn’t helped. Beijing has also substantially cut down on imports of commodities such as coal and iron ore, forcing hundreds of previously chartered dry-bulk ships to be idled or recycled. The world’s largest bulk carrier, China Cosco Bulk Shipping, a unit of China Cosco Shipping Co., said in June it would recycle 53 vessels by the end of next year, or 8% of its existing fleet capacity.

In the past, recycling a ship has typically generated about one-quarter of the price of a new vessel of the same type and size. But owners say a sharp drop in the price of steel has cut the rate of return to an average of 10% to 15% of the price of a new ship.

Two years ago, in India, Pakistan and Bangladesh were paying about $460 a ton of steel. Last year it was $300 and it is now roughly $250, shipowners say. Officials at the Alang scrapyard—one of the world’s biggest, on India’s West Coast—said prices were likely to stay low through the rest of the year, as China is flooding the market with recycled steel.

Braemar ACM expects about 550 dry-bulk ships to be recycled this year, 29% more than last year and 48% more than in 2014. About 170 container ships are likely to be scrapped this year, compared with 85 last year and 164 in 2014. The scrapping of other ship types, such tankers, car carriers, general cargo ships and fishing boats, bring the year’s total to about 1,000 vessels.

South Asian scrapyards recycle about three-quarters of all ships every year. The remainder goes to yards in China and Turkey.

Corrections & Amplifications: This year ship orders through July fell to 293 vessels, according to U.K. marine data provider Vessels Value. An earlier version of this article incorrectly said it was 292.

Appeared in the August 15, 2016, print edition as 'Slump Sends Big Ships to the Scrapyard.'